Retirement Plan

10/28/2019

“The fantasy of being your own boss and filling your days as you wish is a powerful one. However, if you’re not careful, you could spend those golden years trying to earn more or pinching every penny.”

There are just about as many ways to ruin your retirement, as there are light bulbs on Broadway, or stars in the sky. You get the picture: it’s easy to ruin your retirement, says Reader’s Digest in the article “15 Retirement Mistakes That Will Ruin Your Retirement.” These useful tips deserve your attention.

Using your retirement accounts like a checking account. Treat your 401(k) and IRA accounts like they are pure gold and only for retirement. Only use them in emergencies and understand that you’ll pay a penalty, if you withdraw from a 401(k) before age 59 1/2. Every dollar you take out of a 401(k), costs you $10-$20 in lost future retirement income.

Forgot to plan for long-term care? This is one of the biggest threats to everyone’s nest egg. One year in an assisted living facility could add up to an average of $43,200, and the cost of a nursing home for one year could easily be double that. Long-term care insurance pays for adult day care, respite care, stays in special facilities for Alzheimer’s patients and hospice. LTC insurance also pays for in-home care, like skilled nursing, rehab therapy and personal care.

Getting aggressive in the market a few years before retirement. Three to five years before retirement is not the time to bet the house and hope your ship comes in. If you take a big hit, there’s no time to make up for twenty or thirty years of saving.

Expect a short and sweet life? You might be surprised at how long you live. However, you may also be surprised at the amount of money you need to live a long life. Create a retirement budget that anticipates a longer life span. You can always find a way to spend or give away money.

Make retirement saving a top priority. It’s not easy when you are trying to save for retirement, put kids through college and maybe remodel your kitchen. However, the new kitchen won’t be as much fun, if you are struggling to pay bills on a fixed income.

Neglecting to diversify investments. The right asset allocation can reduce the overall risk of a portfolio, especially as you get closer to retirement. Focusing on fixed income and value-oriented equities will supplement other income sources, like Social Security and a pension.

Being completely conservative. Some of your investments do need to be a little bit risky. You can’t be completely in cash or totally in CDs. There is still a need for growth, and that comes with some risk.

Supporting adult children. Putting retirement at risk because of children who aren’t fully independent creates problems for parents and children. The children need to understand that parent’s retirement accounts are not their personal ATMs.

Underestimating healthcare costs. A recent study found that the average healthy senior couple can expect to spend more than $275,000 on healthcare in retirement. Look into using a Health Savings Account (HSA) and have some emergency funds set aside.

Responding to volatile markets with emotions. A series of down days on the market, or bad news that pushes markets down for a few days or even a few months, is not the time to call a broker in a panic.

The impact of state income tax and high property tax rates. Most people have lost the ability to take itemized deductions or are limited by what they can deduct. The SALT limit is $10,000. A move to a lower tax state may be helpful in stretching retirement dollars.

Social Security planning strategies. Don’t just take your benefits as soon as you can. There are strategies that can maximize benefits for you and a surviving spouse.

Debt during retirement. Before retiring, pay off as much debt as you can. The more debt you have, the more vulnerable you are. That’s when an unexpected expense can derail retirement.

Have a realistic budget. Create a budget based on what your income will be during retirement. Do this before you stop working and try living on it. If you don’t have enough, keep working and rework your budget.

Procrastination on saving. Save early and save often. The longer you put off saving for retirement, the less time you have to catch up. Time can be your best friend, if you start early, or your worst enemy, if you wait too long.

09/27/2019

“Contemplation of retirement can be both exciting and intimidating. Obviously, planning for the beginning of retirement should start early.”

While you may be thinking about retirement for a long time, with visions of tropical beaches or grand trips overseas, when the date starts to get closer, it’s time for some real analysis and planning, says limaohio.com’s recent article “What to consider when starting retirement.”

Start with a realistic assessment of your healthcare needs. At age 65, most people are eligible for Medicare. There are many different parts of Medicare, identified by letters, that are optional add-ons to expand coverage to serve more like the health insurance you have while working. Medicare is not directly charged to individuals, but the parts in which Medicare participants opt into, do require out of pocket payments.

Next, prepare a budget and cash-flow plan that reflects your current cash-flow situation and compare that to your expected cash-flow situation upon retirement. During retirement, income comes from several sources: part-time work, Social Security, distributions from retirement plans and earnings from investments or returns from investments.

As you get closer to retirement age, you can secure an estimate of your benefits from the Social Security Administration. This can be done by going to the government agency’s website and creating a “my Social Security” account, by calling the local office or sending a letter via mail. Note that the estimates are only estimates. Don’t depend on those being the final numbers.

Social Security benefits are based on the number of years you have worked and the amount of money that was contributed to Social Security over a lifetime. Many people mistakenly think that Social Security is a government managed retirement system, where there is a relationship between what gets paid and what is distributed. However, Social Security’s process of determining benefits is based on a formula.

Based on your birthdate, Social Security calculates the age at which you can receive the program’s maximum benefit. If you take benefits before that date, then the monthly amount will be smaller over your lifetime. The longer you can delay taking benefits after your Full Retirement Age (FRA), the larger the monthly payment will be.

Retirement accounts, like 401(k)s and IRAs, allow for withdrawals without penalty after age 59 ½. Unless the account is a Roth IRA, any amounts withdrawn will be subject to taxes. At age 70 ½, account owners are required to withdraw a certain amount from IRAs and 401(k)s, known as Required Minimum Distributions (RMDs).

All this information needs to be considered to plan for retirement, especially with the prospect of needing long-term care, including nursing home or in-home care. This usually involves planning to someday become eligible for Medicaid, if needed.

When you are preparing for retirement, it’s also a good time to make sure that your estate plan is in place. An estate plan that has not been reviewed in three or four years may only need a few tweaks, or it may need a complete overhaul. Speak with your estate planning attorney to make sure you’ve covered all of your retirement bases.

09/04/2019

“Retirement coach Sara Zeff Geber visited several Northern California assisted living facilities to interview ‘solo agers’—people, either single or coupled, who don’t have children to help them as they grow older.”

The adult children are the ones who badger their aging parents to leave their single family home and take up residence in a long-term care or senior living community. Those who don’t have children, or whose children are not a part of their lives, are more likely to encounter serious risks like isolation, financial elder abuse, malnutrition and other dangers.

It is the children who usually instruct mom or dad to hand over the keys to the car, who notice a decline in physical or mental abilities and identify sources for help, oversee their finances and supervise caretakers. A solo person who can no longer care for themselves, isn’t likely to have the ability to conduct a thorough study of possible living situations.

This is a tough but necessary scenario that single seniors need to be aware of. How can you stay safe and happy, while preparing for care you may need in the future?

Start by building a community. Without an extended social network, seniors can find themselves isolated and lonely as friends die or move in or near their grandchildren. By strengthening ties with the remaining relatives and cultivating new friends, especially those who are younger, it’s possible to build a new network. The same thing applies to making friends with neighbors, the people you see in the coffee shop every day and other acquaintances. You don’t need to be best friends with everyone. However, a big network of what are called “weak tie relationships” can be powerful.

Be smart about where you live. A walk-up in a five-story building may be great when you are in your thirties, forties or even fifties. However, at some point, that’s just not a good idea. If you live in the suburbs, what will happen when you can’t drive anymore? Not everyone wants or can afford to live in a planned community. There are some cities that have organized villages for aging in place, where there are services available for seniors, including local transportation to and from the local senior centers. Co-housing is another option, where people build clusters of homes around shared spaces. In some communities, there are “naturally occurring” retirement communities where residents socialize and look out for each other. They might crop up in any kind of living situation, from apartment buildings, condos, townhouses, etc. Don’t overlook the “Golden Girls” lifestyle—sharing a home with other seniors.

Either enlist or if need be, hire future guardians. Estate planning attorneys recommend that all adults have documents in place that permit someone else to make decisions, in case of incapacity at any age. However, for solo seniors, it is especially important to have powers of attorney for finances and health care. Without these documents, someone else who may not even know you will be given control over your finances and health care. Becoming a ward of the court is not an ideal situation for anyone, especially a vulnerable senior.

Choosing someone to take on these roles is not always easy. It may be a younger friend or a trusted relative (preferably younger) may be willing. In California and Arizona, it is possible to hire a licensed fiduciary for this role. Your estate planning attorney may be able to put you in touch with an appropriate professional.

08/05/2019

“Experts advise closely evaluating your expenses, sources of income and the potential tax implications that come with different types of income. Your asset allocation—how your portfolio is divvied up among stocks, bonds and cash—also should be reviewed.”

How much do you spend? When income is steady, we tend not to think about what we spend. However, when we transition into retirement, a budget is our best friend. If you don’t know what you spend monthly or annually, pre-retirement is the time to start tracking your cost of living. Remember that you may be spending less on work-related items, but more on leisure. If you can get rid of debt before retiring, you’ll also be in a better situation. Not everyone can go into retirement debt-free, but try to minimize as much debt as you can.

The big unknown: health care costs. This is the biggest unknown of retirement. If you are 65, it’s time to sign up for Medicare, which pays for much, but not all, of your health care costs. You’ll need to pay for dental, vision and long-term care costs. If you haven’t already purchased a long-term-care insurance policy, take care of that soon. Medicare does not cover the cost of care for daily living costs, like bathing or dressing.

How much you pay for Medicare depends on your recent income, if you signed up on time, and what additional coverage you select. If you didn’t sign up when you were first eligible, or if you don’t meet an exclusion, or if you have a high income, you’ll pay more.

You can’t get Medicare coverage until you turn 65, so if you retire younger than age 65, you’ll need to secure your own health insurance.

What happens if you retire before you turn 65? A federal law, COBRA, requires employers with at least 20 workers to allow ex-employees, including those who have retired, to remain in the employer-sponsored plan. The catch? The former employees must pay the full cost of the premiums. That can be expensive.

Are there other options? You might be able to sign up for a health insurance exchange program (the Affordable Care Act plan), if they are available. There are short-term plans that cover the gap between employment and retirement, if you can qualify. They are mostly available for healthy people with no pre-existing conditions.

Do you have a Social Security strategy? The longer you can delay taking Social Security benefits, the larger your checks will be. Even knowing this, many people start taking benefits as soon as they become eligible, because they need the income. However, if you can wait, your benefits will increase by 6-8% yearly until you reach 70. These days, more people celebrate their 65th birthday and keep right on working. At least 55% of people ages 60-64 are working part time, as reported by the Bureau of Labor Statistics. People age 65 to 69 are also working—nearly 31%.

What does your retirement income look like? Retirement income comes from a variety of sources and everyone has their own mix. You might have a Roth IRA, or a traditional IRA. If you have a traditional IRA, you’ll have to consider that your withdrawals are going to be taxed as regular income. An IRA of $1 million may leave you with $700,000 in after-tax income, depending upon your tax bracket.

If your investment accounts are healthy and you’ve been investing for decades, you will probably have to pay capital gains taxes on some of the withdrawals.

Lucky enough to have a pension? Fewer and fewer Americans can count on a pension from their employer. However, if you have a pension in place, chances are you must take either a lump-sum payment or receive income over your lifetime. Pull out your paperwork and read it carefully. What will the benefits be for a surviving spouse? Do you have the option to leave the pension to a beneficiary?

Creating a plan for your retirement income in advance will help you avoid some of the common pitfalls, like spending so much in the first five years of retirement that the next decade or two is fraught with financial worries. While you’re at it, start preparing your estate plan with an experienced estate planning attorney.

06/25/2019

“Almost every day I hear someone mention the topic of caring for aging parents. It seems only yesterday that my friends and I were swapping colic-coping methods, survival techniques for the terrible twos and picky eater solutions.”

The cause for sleepless nights for many, now comes from worrying about aging parents. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances and end-of-life wishes.

Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.

One family made arrangements for their mother to take a tour of a nearby senior-living community, after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.

Money becomes an issue, as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.

However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances, to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.

As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or explain any confusing matters, is very important.

Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a last will and testament, durable power of attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.

Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.

One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains?

What do they want to be done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for? One family used masking tape and a marker to write the names of the people they wanted to receive certain items.

Finally, what do they want to happen to their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.

Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.

If you remember Jack Colton, the male lead in 1984’s “Romancing the Stone,” then you know about a guy who spent his whole life dreaming of owning a sailboat, even while he was hiding from a foreign army and getting involved in a crazy criminal treasure hunt. Retirement savers need to find their own inner dream, one they cannot be distracted from and that will keep them focused on saving and investment, no matter what. Imagine your future self-doing what you love doing.

Then there’s “The Bucket List,” with Carter and Edward, who are ready to have an adventure, when their diagnoses are terminal. If you’ve got some thoughts about a bucket list floating around, make them real. Write them down. Then put them in order of priority. Visualize what you’ll need to do to get there. Building your connection with your dreams, will keep you motivated.

An example of keeping your eyes on the prize comes from Netflix, with “Fuller House.” This is a great example of how mapping goals can clinch a retirement strategy. Sitcom dad Danny Tanner gives his San Francisco home to his daughter. He’s not retiring, but he planned for years to live where he wanted, while giving his daughter and her family his home. Know where you want to live in retirement and keep that in sharp focus.

“Everybody Loves Raymond” features Ray and his family and his parents. They live close together, so much so that they are involved in every detail of each other’s lives. Or, for a completely different lifestyle, remember the 2012 comedy “Quartet,” directed by Dustin Hoffman? This was about a retirement community for stage performers, who sought to create a new community among their fellow actors.

Figuring out who you want to spend your retirement years with, can have a major impact on where you will live. Do you want to be close by your family, involved with their daily lives, available for babysitting, family dinners and the grandchildren’s soccer games? Or would you rather pursue your own interests and enjoy a warm climate?

The better you can clarify your retirement dream, the more focused you’ll be on doing what needs to be done, regardless of the distractions around you.